When Danaher Corporation (NYSE:DHR) announced its most recent earnings (29 June 2018), I compared it against two factor: its historical earnings track record, and the performance of its industry peers on average. Being able to interpret how well Danaher has done so far requires weighing its performance against a benchmark, rather than looking at a standalone number at a point in time. In this article, I’ve summarized the key takeaways on how I see DHR has performed.
Could DHR beat the long-term trend and outperform its industry?
DHR’s trailing twelve-month earnings (from 29 June 2018) of US$2.67b has jumped 21.9% compared to the previous year.
Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 0.5%, indicating the rate at which DHR is growing has accelerated. What’s the driver of this growth? Well, let’s take a look at if it is only due to industry tailwinds, or if Danaher has experienced some company-specific growth.
In the last few years, Danaher increased its bottom line faster than revenue by effectively controlling its costs. This resulted in a margin expansion and profitability over time.
Inspecting growth from a sector-level, the US medical equipment industry has been growing, albeit, at a subdued single-digit rate of 6.6% in the past year, and 8.5% over the past five years. This growth is a median of profitable companies of 25 Medical Equipment companies in US including WNDM Medical, Pro-Dex and LivaNova. This means that any tailwind the industry is benefiting from, Danaher is able to amplify this to its advantage.
In terms of returns from investment, Danaher has fallen short of achieving a 20% return on equity (ROE), recording 9.8% instead. Furthermore, its return on assets (ROA) of 5.9% is below the US Medical Equipment industry of 6.8%, indicating Danaher’s are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Danaher’s debt level, has declined over the past 3 years from 8.9% to 7.7%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 20.3% to 41.6% over the past 5 years.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Companies that have performed well in the past, such as Danaher gives investors conviction. However, the next step would be to assess whether the future looks as optimistic. I recommend you continue to research Danaher to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for DHR’s future growth? Take a look at our free research report of analyst consensus for DHR’s outlook.
- Financial Health: Are DHR’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 29 June 2018. This may not be consistent with full year annual report figures.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.